Part 1: Individual Tax Provisions
The “One Big Beautiful Bill Act” (OBBBA) was signed into law on July 4, 2025—but tax professionals are still orienting themselves to the dozens of changes the bill introduced. Since many of these changes take effect for tax year 2026, the time to begin updating your tax plans is now. Which tax benefits are disappearing, threatening to raise your clients’ tax bill? Which credits and deductions are being updated or kicking in for the first time this year? Read our two-part overview to find out—starting with the tax provisions most likely to impact individual taxpayers.
Charitable Contribution Deductions
The rules around charitable contributions are changing significantly under the OBBBA. The first change could offer a boost to taxpayers who don’t typically itemize—and therefore don’t typically get a charitable deduction at all. Starting in 2026, taxpayers who do not itemize can get an above-the-line deduction of up to $1,000 (or $2,000 for married couples filing jointly) on any cash charitable contributions. This provides a brand new incentive for people who cannot itemize to donate cash to charity.
The other OBBBA changes introduce limits to how much itemizers can deduct. First, there is now a floor on charitable contribution deductions. Itemizers can only deduct the amount that exceeds 0.5% of their adjusted gross income (AGI). So if a taxpayer earns $1 million in AGI, their first $5,000 in charitable contributions would be non-deductible. Any donations above that would be deductible.
Now the next question is, are taxpayers allowed to carry forward charitable contributions that cannot be deducted in the year they were made? There is an exception taxpayers can take advantage of—that is, if other provisions allow the donations to be carried forward. For example, the OBBBA made permanent the limitation that says deductions for cash charitable contributions cannot exceed 60% of the taxpayer’s AGI. However, any contributions that are not deducted can be carried forward for up to five years. So if a taxpayer makes sizable donations that exceed 60% of their AGI, those contributions can be carried forward and deducted in the following years.
Dependent Care Benefits
The OBBBA made several changes to tax benefits related to dependent care. First, the dependent care assistance exclusion was increased from $5,000 to $7,500. This benefit allows employees to exclude employer-provided child or dependent care assistance from their annual gross income.
Second, the child and dependent care credit has been increased to 50% of care expenses provided so parents and guardians can actively look for work. The full 50% is available to taxpayers whose AGI is $15,000 or less. Of course, this will not apply to many taxpayers, so the more applicable piece is what is available at other income thresholds. For 2026:
- The percentage available falls by 1% (not to fall below 35%) for each $2,000 by which the taxpayer’s AGI exceeds $15,000
- The credit rate is 35% for taxpayers with AGI between $43,001 and $75,000
- The credit rate is 20% for taxpayers with AGI between $75,001 and $105,000
Health Savings Accounts
The OBBBA’s changes to health savings accounts (HSAs) can provide a huge tax planning opportunity, especially for your self-employed clients. As of 2026, if a taxpayer has a bronze-level or catastrophic plan on the marketplace, they can now access an HSA. Before this only taxpayers with a high-deductible health plan (HDHP) qualified for an HSA. Now, even bronze or catastrophic plans purchased on the individual market can be treated as an HDHP if the same plan is available as individual coverage through an Exchange.
Another major change is that direct primary care service arrangement (DPCSA) expenses are now considered qualified medical expenses and can be paid for with HSA funds. A DPCSA allows someone to pay a doctor a monthly fee and receive services without going through health insurance. Unless the aggregate fees associated with the DPCSA exceed $150 a month, the taxpayer is not treated as being enrolled in a health plan and therefore is eligible to make HSA contributions.
Limitation on Itemized Deductions
The Pease limitation is out and a new limitation on itemized deductions is in. Under the OBBBA, the Pease limitation, which reduces the value of itemized deductions for higher-income taxpayers, has been permanently terminated. Instead, a new limitation is in place that relies on marginal tax rates instead of a set income threshold. For taxpayers in the 37% income tax bracket, itemized deductions will be reduced so that the net tax reduction never exceeds 35%. Under the new rules, itemized deductions will be reduced by 2/37 of the lesser of these two values:
- The total amount or itemized deductions, or
- The taxable income for that tax year that exceeds the amount at which the 37% tax bracket begins for that taxpayer
This means that even if a taxpayer can deduct charitable contributions, gambling losses, or state and local taxes (SALT), these deductions may be reduced if the taxpayer has high income. So for wealthy clients, you may especially want to recommend a donor advised fund or other bulk charitable strategy to avoid these issues.
Premium Tax Credit
This tax credit provides a government subsidy on health insurance purchased through a marketplace or exchange. A number of changes to this credit will be rolled out over the next several years.
Starting in 2026:
- Taxpayers with income over 400% of the federal poverty line are no longer eligible to claim the premium tax credit.
- Taxpayers who are lawfully present immigrants may not be eligible for the credit. This is true if they are ineligible for Medicaid and their income is below 100% of the federal poverty line.
- Taxpayers who enrolled in a plan during an income-based special enrollment period, not connected to a change in other circumstances, cannot claim this credit.
- The limitation on repayments has been removed, so taxpayers who received premium tax credits they no longer qualify for must repay them in full regardless of income level.
- A new verification system will be introduced (instead of simply self-reporting).
Starting in 2027:
- Most non-citizens will not be able to claim the premium tax credit—exceptions currently include green card holders and a few other small groups.
Summary
Understanding the nuances of each OBBBA tax provision takes work, but the results are well worth it. Knowing which tax benefits apply to a client and which are no longer relevant is exactly what taxpayers rely on us for. Seeing a barrage of news headlines about tax overhauls may be overwhelming to the average taxpayer, but as tax professionals, we know how to pick out the gems—the changes that actually matter when it comes to lowering a client’s tax bill.
To deepen your understanding of recent tax law changes and how they may shift your tax strategies, sign up to be a Certified Tax Planner today!
